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Uganda’s budget expansion on paper, contraction in practice

Uganda’s budget policy has, over the last decade, always been expansionary in planning but contractionary in implementation.

This is demonstrated by the sub-optimal realization of National Development Plan (NDP I) (78 per cent of the planned activities achieved) and the same trend is likely over the NDP II.

Looking at national budgets since the enactment of the Public Finance Management (PFM) Act in 2015, the approved budgets for the last three financial years (FYs) have averaged Shs 29 trillion.

However, the executed budget has only averaged Shs 20 trillion over the corresponding period. Reference is made to the PFM Act with emphasis as it established a mechanism of ensuring that both domestic and external debts are approved by parliament.

Uganda was in a peculiar position, where half of its domestic debt – approximately Shs 5 trillion – was maturing in FY 2015/16. And the only modality of paying it off was through negotiations for its rollover.

There is virtually no expenditure of this amount but rather, a bookkeeping issue. The current presentation of domestic debt rollover is not only short of effective communication of the fiscal policy stance, but also does not give detailed narrative of domestic debt maturities and rollover in terms of composition, tenure, interest rate and holders of the portfolio. This means parliament simply rubberstamps this without a detailed discourse.   

Contextually, of the Shs 32.3 trillion budget for FY 2018/19 recently passed by parliament, only Shs 23.9 trillion (74 per cent) will be spent on the ministries, departments, agencies and local governments.

This means debt refinancing (domestic debt rollover) of Shs 5.8 trillion (45 per cent of outstanding debt) is excluded from the totals. Unfortunately, the available medium- term policy statement and commitments do not explicitly indicate how these persistent rollovers will be addressed. 

There are other exclusions but in this case, there is planned expenditure: arrears (Shs 735 billion), external debt repayment (Shs 894), and aid in appropriation (Shs 1.1 trillion). The latter relates to money collected by spending agencies and allowed to spend at source – which would have ideally been categorized as non-tax revenue.

For full transparency and effective collection, all this money should be collected by Uganda Revenue Authority and transferred to national treasury from which respective appropriations are made.

Regarding arrears, the approved allocations are more than double the allocations in current FY, which is commendable and a positive signal to the private sector.

However, it is way lower than the outstanding arrears of Shs 2.9 trillion at end of June 2017. More domestic arrears continue to be accumulated with no punitive undertaking on culprits, which perpetual trend has undermined credibility of the budget. In addition to domestic refinancing, nearly Shs 1 trillion will be borrowed from the domestic market.

This may not be good news for the private sector given that private sector credit growth, over the last couples of years, has been subdued relative to historical growth and government borrowing from the domestic market.

As such, government domestic borrowing is nearly same as private sector borrowing contrary to policy requirement that government domestic borrowing should not exceed three quarters the size of private sector credit.

Deductively expansionary fiscal policies support economic growth and poverty reduction, but the last five years may suggest otherwise, as exhibited by less than potential economic growth and increased poverty. So, the question is whether the Ugandan budget policy addresses the three fundamental objectives of fiscal discipline, allocative efficiency and operational efficiency.

Fiscal discipline is maintained at macro level but with growing weakness. The widening fiscal deficits have increased Uganda’s debt vulnerability to medium-term shocks despite Uganda’s debt assessed to still be of low stress.

Debt-to-GDP ratio has increased from by 10 percentage points between 2012/13 and 2016/17 to 38.6 per cent at the end of June 2017. This pace of growth, if not curtailed, would render debt unsustainable sooner than later. Considering both disbursed and undisbursed public debt, Uganda’s debt is over and above 55 per cent of GDP.

While infrastructure expenditure on roads and energy continues to be the dominant focus of the budget, interest payments account for the largest share of the domestic-funded segment of the budget. In terms of operational efficiency, there is continued low budget absorption especially in infrastructure projects.

For example, Uganda National Roads Authority – the spending agency that accounts for the largest portion of the budget – continues to receive a qualified audit opinion (implying some material misstatements in financial reports).

Arguably, the analytical preamble supports the  Richardian equivalence  economic theory which suggests that government may try to stimulate the economy by increasing debt-financed government spending, but demand and investment remain unchanged or, even worse, constrained.

The author is an economist based in Kigali.

Comments

0 #1 Akot 2018-06-10 18:20
What do you expect from a country run by 1 man as family business & he has no opposition?

After 32 years, there will never be consideration for the people who stupidely gave shelter to Museveni when Kenya-Tanzania saw through him & didn't take him in!

Musevni found what he longed/dreamed of & will do as he wants until Ugandans stop him in UNITY!

Until then, the master will continue buying Ugandans off while his war dongs make sure the country is at peace even when they are payed pea nuts-live in rat holes!

Ugandans should bynow know: no individual, no small group, no tribe, no region, can defy the owner of Uganda & get away with it!

Ugandans should also know as long as Museveni in on, there is no need to have mps to blind the world it's democracy when parliament woks for Museveni & not electorate!
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